Last month, Westpac announced that it would no longer be offering SMSF loans for both residential and commercial properties as of the 31st of July.
Since then, more of the big banks have followed suit and declared they will also be moving out of the SMSF lending space. The Commonwealth Bank is now the only big bank continuing to offer SMSF loans to its customers.
What is an SMSF Loan?
An SMSF loan is a home loan utilised by self-managed-super-funds (SMSFs) to purchase investment properties.
Current SMSF Investment Property Loans allow Australians with an SMSF to borrow between $200,000 and $2 million against their super to buy investment property in Australia.
In this model, the trustee of the property pays the deposit and completes the contracts; then, once the loan is settled, the trustee mortgages the property to the bank, who advances the loan.
The move by Westpac means that its subsidiaries St. George Bank, Bank SA and Bank of Melbourne will also no longer offer these products.
Continuous Product Review
In a public release, Westpac stated: “We continually review our products and services to ensure they meet the requirements of our customers.
In order to simplify and streamline our self-managed super fund products, we will be withdrawing from sale our SMSF home loan product and business lending to SMSFs, effective Tuesday, 31 July 2018."
With this deadline already passed, SMSF loans are now much harder to acquire in the financial market. However, Westpac will continue to honour in-process applications until 30 October 2018, provided that all paperwork is dated prior to the 31st of July.
The spokesperson confirms that: “We will continue to service and support our existing customers.” However, SMSF loan customers will no longer be allowed to switch from principal, interest & fees (PIF) to interest only, or any extension of interest-only terms.
The decision to cut SMSF loans comes after the Australian Prudential Regulation Authority applied extra scrutiny to bank lending practices and announced a plan to remove the 10 per cent investor loan growth benchmark, replacing it with other measures to improve lending standards in Australia.
SMSF loans had been under specific scrutiny after a case study during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry indicated that banks had given "inappropriate advice." A further review from the corporate regulator also found that 90% of advice given about SMSFs was not compliant with best interest obligations.
Under this shroud of change and scrutiny, it is wise to be considerate and cautious before engaging in any SMSF lending.
The decision by ANZ, NAB and Westpac to get out of SMSF lending entirely, leaves a big hole in competition and with it, more expensive lending rates.
This makes the hurdle rate for success from a property lending strategy higher, at a time when property already has several head winds facing it.